Developing Country Preferences: Trade Tool?

Exercising his favorite trade tool, President Trump has imposed tariffs under Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, as a means of pursuing U.S. interests. In another effort to promote domestic interests, the president’s trade team is tackling special treatment accorded developing countries. It is seeking a reduction in the number of WTO members that qualify for developing country status and benefit from special and differential treatment in WTO agreements. The administration is also taking a more “proactive” approach in scrutinizing the eligibility of developing countries under the Generalized System of Preferences (GSP) program. That has already led to determinations to revoke GSP benefits for India, Thailand and Turkey. This post reviews the Trump administration’s measures to tighten the use of GSP.

Under GSP, its largest and oldest trade preference program, the United States provides nonreciprocal, duty-free tariff treatment for 3,500 products imported from 119 designated beneficiary developing countries and territories in order to promote their economic development through trade. To remain eligible for these benefits, beneficiary countries must comply with 15 statutory eligibility criteria.

Potential changes in eligibility are subject to annual review and public notice and comment. Drawing from interagency advice, the president may terminate, suspend or limit GSP status at any time, based on the eligibility criteria, provided he notifies Congress 60 days before taking action. 

A beneficiary country must be “graduated” from the GSP if the president determines that it is a “high income country,” as defined by official World Bank statistics. He has the discretion to graduate a beneficiary country based on its level of economic development (i.e., income per capita, living standards of inhabitants, or any other economic factors the president deems appropriate).

In 2017, USTR announced a new “more proactive” effort to ensure GSP beneficiary countries are meeting the eligibility criteria. It initiated a triennial assessment of each GSP beneficiary country to determine whether each is meeting all GSP criteria. The first set of assessments in 2018 focused on beneficiary countries in Asia and the Pacific Islands. As a result of that process and petitions from U.S. stakeholders, USTR launched new GSP eligibility reviews of India, Indonesia, Kazakhstan, Thailand and Turkey. In 2019, USTR is focusing on GSP-eligible countries in Europe and the Western Hemisphere.

In its 2019 Trade Policy Agenda and 2018 Annual Report, USTR emphasized that the administration was continuing to ensure appropriate application of GSP and other trade preference programs. Of the 15 statutory criteria beneficiaries must meet, it singled out criteria “affording internationally recognized worker rights, providing adequate and effective protection of intellectual property (IP) rights, and assuring the United States that the beneficiary will provide equitable and reasonable access to its market.” Other mandatory criteria require that eligible countries must not have nationalized or expropriated the property of U.S. citizens or failed to recognize or enforce arbitral awards in favor of U.S. citizens or corporations.

In March 2019, USTR informed Congress it would terminate the GSP benefits for India and Turkey, “at the direction” of President Trump. It stated that the terminations were the result of India’s failure to provide the U.S. with “equitable and reasonable access to its markets in numerous sectors” and the level of Turkey’s economic development. It concluded that Turkey “is sufficiently economically developed and should no longer benefit from preferential market access to the [U.S. market.” The administration is currently engaged in trade negotiations with India in which restoration of India’s GSP benefits are an issue.

On October 25, USTR announced the outcomes of its latest country eligibility reviews:

  • Thailand: USTR revoked GSP eligibility for one-third of Thailand’s GSP trade, effective in six months, for failure to provide internationally recognized worker rights in a number of areas, identified in a 2015 American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) petition. Its exclusions focused on products for which the U.S. “is a relatively important market for Thailand, but where Thailand accounts for a relatively small share of U.S. imports.”
  • Ukraine: USTR restored approximately one-third ($12 million) of the GSP benefits that it had suspended in December 2017 for Ukraine’s failure to provide adequate and effective protection of IP rights based on a petition by the International Intellectual Property Alliance. The restoration was based on 2018 legislation enacted by Ukraine. 
  • Bolivia, Iraq and Uzbekistan: USTR closed its GSP reviews of the three countries, based on passage of legislation by Bolivia and Iraq that improved their protection of worker rights, and Uzbekistan’s accession to several international IP conventions and treaties.
  • Azerbaijan: USTR is self-initiating a GSP eligibility review based on concerns with its compliance with the GSP worker rights criterion.
  • South Africa: USTR is initiating an eligibility review based on a petition from the International Intellectual Property Alliance that raised concerns with South Africa’s compliance with the GSP IP criterion, in the area of copyright protection and enforcement.

USTR regards its enhanced scrutiny of developing countries’ compliance with GSP requirements as setting “the correct balance for a system that helps incentivize economic reform in developing countries and achieve a level playing field for American businesses.” How this balance is maintained warrants attention, particularly if the Trump administration uses the withdrawal or reduction of GSP benefits as leverage to pursue U.S. trade interests at the expense of promoting economic development in beneficiary countries, as Congress intended.

The GSP program was established by the Trade Act of 1974 and is reauthorized until December 31, 2020.

Jean Heilman Grier

October 30, 2019

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